Swiss Re Insurance-Linked Fund Management

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Fate of MultiCat Mexico 2012 should be known within 120 days: S&P


It’s no surprise to see that rating agency Standard & Poor’s has now placed the $100m MultiCat Mexico Ltd. (Series 2012-1) Class C catastrophe bond notes on CreditWatch with negative implications as they sit at risk of loss due to hurricane Odile.

S&P is the rating agency for the World Bank arranged MultiCat Mexico 2012 cat bond and as a result has to respond to any threats to the notes credit profile, such as a hurricane like Odile which may have triggered them.

As we wrote in our piece yesterday it could take some time before a final assessment on whether the Class C notes have been triggered is released, due to the requirement to wait for the National Hurricane Center’s official report on the hurricane. That seems to take up to two months, based on the length of time it took the NHC to release other post-event cyclone reports along with the necessary ‘best track’ data.

S&P reveals a little more detail on the MultiCat Mexico 2012 calculation process in its note on the cat bond, saying that the calculation agent (AIR Worldwide in the case of this cat bond) is supposed to release a completed event report within 15 days of the hurricane event parameters date.

That date is defined as either when the first tropical cyclone report becomes available containing all the necessary information required by the calculation agent to make a call on whether the cat bond has been triggered (so may take two months as we said), or 120 days after Odile made landfall.

So, that means it could be 120 days at most, after landfall of the storm, before the fate of the Class C notes are known. We assume that if the tropical cyclone report is not available then the calculation agent would use the preliminary data which is available now, on which basis it would appear that the cat bond has been triggered as we wrote yesterday.

S&P said that Swiss Re, the sponsor of the MultiCat Mexico 2012 cat bond, although the intermediate reinsurer is AGROASEMEX, S.A. and the ultimate insured is The Fund for Natural Disasters of Mexico (Fonden), submitted an event notice to the calculation agent on the 16th September.

The fact that S&P has placed the Class C notes on CreditWatch negative reflects that a triggering event may have occurred, the rating agency wrote. S&P explained:

Based on the event definition in the transaction documents, the central pressure requirement for an event to be considered a triggering event is equal or lower than 932 millibars. We reviewed an update from the National Hurricane Center that indicated a reading of 930 millibars at one station located at 22.9N 109.8W., which would fall within the covered area. In this case, the transaction documents state that noteholders would lose 50% of their principal amount.

If it is finally decided that hurricane Odile has triggered the MultiCat Mexico 2012 Class C notes then S&P will downgrade the tranche to ‘D(sf)’ and if they are not triggered the rating will be removed from watch and affirmed at ‘B-(sf)’.

So it looks like it will either be up to approximately two months, for the NHC to release the best track data on hurricane Odile, plus another 15 days, or alternatively 120 days after Odile made landfall, before the ILS investors holding the Class C notes will know if there has been a loss.

It’s one thing for investors to wait to understand whether they face a loss, but more importantly as a parametric cat bond offering disaster risk financing to a government backed catastrophe fund, the quicker the payout the greater the positive impact on the region hit by hurricane Odile’s ability to rebuild and bounce back.

We will continue to update you as more information emerges and the fate of the at-risk MultiCat Mexico Ltd. (Series 2012-1) catastrophe bond Class C notes is revealed.

Read our other coverage of this potential triggering event:

Did hurricane Odile just trigger the MultiCat Mexico 2012 cat bond?

MultiCat Mexico 2012 cat bond payout not guaranteed yet.

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